Can You Add Money to Your 401(k) Outside of Payroll?

A 401(k) plan is an employer-sponsored retirement savings account that offers tax advantages. It allows employees to contribute a portion of their salary, which can then grow over time through investments. These plans are regulated by the Internal Revenue Service (IRS) and the Department of Labor. Understanding how money flows into these accounts is essential for maximizing their benefits.

Your Contribution Options

Employees fund their 401(k) accounts through payroll deductions, where an amount is withheld from each paycheck and sent to the plan administrator. This method simplifies regular savings and ensures consistent contributions. Employees elect their contribution rate as a percentage of their salary or a fixed dollar amount.

There are two types of employee contributions: traditional (pre-tax) 401(k) contributions and Roth 401(k) contributions. Traditional 401(k) contributions are made with pre-tax dollars, meaning they reduce your taxable income in the year they are made. Taxes on these contributions and their earnings are deferred until retirement withdrawals.

In contrast, Roth 401(k) contributions are made with after-tax dollars, so they do not provide an immediate tax deduction. The advantage of Roth 401(k)s is that qualified withdrawals in retirement, including all earnings, are entirely tax-free. Employees can adjust their contribution amounts by contacting their human resources department or through an online benefits portal.

Employer Contributions

Employers can boost an employee’s 401(k) savings through various contribution methods, which are separate from employee deferrals. One common type is matching contributions, where the employer contributes an amount or percentage for every dollar an employee contributes, up to a specified limit. These matching contributions often come with a vesting schedule, meaning employees must work for the company for a certain period before they fully own the employer’s contributions.

Another form of employer contribution is profit-sharing. This allows employers to make discretionary contributions to employee accounts, often based on the company’s financial performance, and unlike matching contributions, employees do not necessarily need to contribute to receive these funds. Profit-sharing contributions provide employers with flexibility, as they can choose whether or not to contribute each year, and the amount can vary.

Annual Contribution Limits

The IRS sets limits on how much can be contributed to a 401(k) each year, which are subject to annual adjustments. For 2025, the annual employee deferral limit for pre-tax and Roth 401(k) contributions is $23,500 under IRC Section 402. This limit applies to the total amount an individual contributes across all 401(k) plans if they participate in more than one.

Individuals aged 50 and over are eligible to make additional “catch-up contributions” to their 401(k) accounts. For 2025, the standard catch-up contribution limit is $7,500, allowing eligible individuals to contribute up to $31,000 in total. Under the SECURE 2.0 Act, for those aged 60 to 63, the catch-up contribution limit increases to $11,250 for 2025, bringing their total possible contribution to $34,750.

Beyond individual employee contributions, there is an overall limit on the total contributions to a single participant’s account, which includes both employee and employer contributions. For 2025, this total annual additions limit, defined under IRC Section 415, is the lesser of $70,000 or 100% of the participant’s compensation. If contributions exceed these limits, the excess amounts, along with any associated earnings, must be removed from the plan by the tax filing deadline to avoid potential double taxation and penalties.

Adding Money from Other Sources

While payroll deductions are the primary way to contribute to a 401(k), existing retirement funds from previous plans can also be transferred into a current employer’s 401(k) through a process called a “rollover.” This involves moving funds from an old 401(k) from a former employer or a Traditional IRA into the current 401(k) plan. Reasons for considering a rollover include consolidating retirement accounts for easier management or potentially accessing different investment options within the new plan.

To initiate a direct rollover, which is recommended to avoid tax implications, you contact your current 401(k) plan administrator to confirm they accept rollovers. Then, you coordinate with the custodian of your old 401(k) or IRA to request a direct transfer of funds. The funds are sent directly from the old custodian to the new 401(k) plan administrator, ensuring the money does not pass through your hands, which helps maintain its tax-deferred status and avoids mandatory tax withholding. If funds are distributed directly to you, you have 60 days to deposit them into another qualified plan to avoid taxes and penalties.